Value Line's Ranking System Failed Miserably in 2009

Value Line(NASDAQ:VALU) released its own figures for the record of their timeliness rankings for 2009 in their Jan. 29, 2010 edition [available on-line today].

In the Value Line system, Group 1's are their highest rated stocks for year-ahead performance and Group 5’s are their ‘must sell’ projections for the worst year-ahead price action.

Here are the dismal results for those that actually followed their advice:

Average % Change in Price for 2009 - Allowing for Changes in Rank Each Week

(Arithmetic averaging)

Group 1

13.1%

Group 2

23.5%

Group 3

45.0%

Group 4

119.4%

Group 5

208.0%

Click to enlarge

Average % Change in Price for 2009 – Without Allowing for Changes in Rank

(Arithmetic averaging)

Group 1

16.0%

Group 2

22.4%

Group 3

41.5%

Group 4

95.0%

Group 5

175.4%

Click to enlarge

Average % Change in Price for 2009 - Allowing for Changes in Rank Each Quarter

(Arithmetic averaging)

Group 1

17.7%

Group 2

19.9%

Group 3

41.9%

Group 4

108.6%

Group 5

207.4%

Click to enlarge

If you followed their recommended strategy of buying/holding only shares ranked 1 and 2 for timeliness and selling those ranked 4 & 5 you had the worst possible results last year whether you adjusted or didn’t adjust throughout that very volatile environment.

In today’s new issue of Value Linethey also reviewed how various stock market strategies performed last year. Once again the Group 1’s underperformed in a big way.

Average % Change in Price for 2009

Low Price to Sales

131.2%

Low Market Cap.

106.8%

Low Price/Book Value

101.0%

Low Price/Earnings

41.0%

Value Line Group 1’s

8.1%

Value Line (geometric) Avg.

36.8%

For their 1700 stock universe

Click to enlarge

I am a long-time subscriber to Value Line as a great source of stock information in what I see as the most useful format in the industry. I am, and have been, a long-term critic of their momentum based timeliness system.